By Clara Nwachukwu
NO fewer than eight issues have been identified as the greatest obstacles to fresh private sector investments in Nigeria’s power sector.

These issues relate to: The maintenance of an inappropriate pricing regime;The failure to establish a bulk purchaser in line with the provisions of the Electric Power Sector Reform Act, EPSR Act;

The failure to address investors’ concerns about the creditworthiness of the distribution companies/bulk purchaser during their eventual transition to financial viability; and

The operational and financial risks to potential acquirers of successor companies posed by the failure to reach an agreement with the labour unions on the settlement of outstanding arrears (of salaries, pensions and other benefits) and on severance pay;

Other factors that contribute to frustrating investment in the sector include:
The uncertainties generated by the delay in operationalising the Nigerian Electricity Liability Management Company (NELMCO);

The delay in contracting out the management of the Transmission Company of Nigeria (TCN);
Concerns about the licensing regime for power generation and power distribution companies; and
The lack of continuity and consistency in pursuing the enactment and commencement of the EPSRA Act and subsequently, after the Act was eventually passed, in following the timelines established therein.

The Presidential Taskforce on Power, PTFP, which identified these obstacles, also said these have immensely undermined not only the objectives of the Power Act, but also retarded development in the sector.

Accordingly, the 15-member Taskforce, headed by Prof. Barth Nnaji, stated that the Federal Government has put in motion immediate plans to eliminate these obstacles to attract more private sector investments to go beyond just power generation to other units of the sector such as distribution, which enjoy strict monopoly by the Power Holding Company of Nigeria, PHCN.

The Taskforce noted that the divestiture of the 18 successor companies through privatisation in some cases was envisioned to attract “the inflow of a large volume of private sector investment through the creation of new power generation and power distribution companies,” which in turn, would have led to the development of a competitive electricity market.
Apart from approving the review of current electricity tariff to support the financial viability of investments in the sector, government would also establish a bulk purchaser.
Clarifying further, the Taskforce noted that under the current tariff regime, the cost of electricity is the cheapest in the West African region. It stated, “The average unsubsidised tariff in Nigeria in 2009 was N7 per kilowatt hour, kWh, and the government was required to pay an additional average subsidy of less than N4/kWh.

However, analysis conducted by the Presidential Task Force on Power indicates that even on the most optimistic of assumptions, the true “cost-reflective” average end-user tariff, for at least the next four years, is not less than N22/kWh, i.e. the average of tariffs set for all the different classes of customers across the three customer categories (residential, commercial and industrial).”